Has Import-Income Elasticity Changed in the Aftermath of the Global Financial Crisis? The Evidence from Poland’s Economy

Abstract:

After a sharp collapse in 2009, the world trade rebounded in 2010, reaching its pre-crisis volume. Although the v-shaped recovery occurred relatively fast, in the subsequent years, trade growth has been sluggish. An analysis of the pre- and post-crisis evolution of trade-income elasticities sheds some light on the structural factors behind the recent trade slowdown. This paper explores the relationship between imports and income for Poland’s economy over the period 1995–2019. The findings show that the income elasticity of import demand in the period 1995q1-2008q3 is nearly double that of the post-crisis era (2008q4-2019q3). This induces a structural break in the import response to income changes and gives rise to an in-depth analysis of the supply-side factors behind the recent trade slowdown.